EIA report undercounts fossil fuel and nuclear energy subsidies

By Union of Concerned Scientists | August 03, 2011

The Energy Information Administration’s latest report on federal energy subsidies, released Aug. 1, underreported direct and indirect federal subsidies to the nuclear and fossil fuel industries, creating an inflated view of the subsidies that benefit renewable energy and efficiency programs, according to the Union of Concerned Scientists. Although the agency concedes that its methodology failed to account for all subsidies that benefit conventional energy sources, its consistent underreporting over the years has enabled advocates of fossil fuel and nuclear technologies to falsely claim they benefit from very few federal energy subsidies compared with renewable energy technologies.

“Thanks to reporting omissions, the nation’s most highly subsidized, polluting industries will be able to use the EIA’s flawed analysis to claim they receive far fewer subsidies than emerging, clean energy technologies,” said Ellen Vancko, manager of the UCS Nuclear Energy and Climate Change Project. “Recent independent analyses show that nothing could be further from the truth.”

The problem with the EIA’s methodology stems from the fact that the agency adopted a “snapshot” approach to measuring subsidies by only looking at a single year: 2010. By doing that, Vancko pointed out, the agency failed to count the massive federal subsidies that the fossil fuel and nuclear industries have enjoyed for decades—benefits they presumably will continue to receive unless Congress acts to limit them. Conversely, relatively new subsidies for wind and other renewables will only last for a finite period—10 years—after those facilities begin operation.

Most of the support for efficiency and conservation projects, meanwhile, came through stimulus grants. These are one-time bumps in spending, unlikely to be repeated given the fiscal constraints the country now faces. Congress chose the grants as attractive targets for stimulus spending because they were initiated quickly, supported many small scale projects—often at the household level and often by small firms—and resulted in permanent cost-savings for lower-income citizens.

The EIA also failed to count subsidies that are available to the oil, gas, coal and nuclear industries that they have not as yet utilized. For example, Congress has enacted numerous large new subsidies in recent years, such as loan guarantees and production tax credits, that would especially benefit new coal and nuclear plants, but because these facilities have not yet been built, the EIA did not include the subsidies in its calculations. As a result, the EIA missed the enormous influence these programs have on the economics of new energy investments.

Last year, UCS calculated the benefit of new, uncounted subsidies for new nuclear reactors under the Energy Policy Act of 2005 at as much as $5 billion per reactor. Meanwhile, a February 2011 UCS report, Nuclear Power: Still Not Viable Without Subsidies, showed that nuclear power has benefitted greatly from subsidies since its inception more than 50 years ago—and the EIA report left them out as well. “Extremely generous existing and new subsidies mask nuclear power’s considerable costs and risks,” said Vancko, “yet they are not accounted for in EIA’s latest report.”

This is not the first time that the EIA has produced a flawed analysis. A 2010 report by Doug Koplow of Earth Track, EIA Energy Subsidy Estimates: A Review of Assumptions and Omissions, for example, identified numerous omissions in the EIA’s 2007 federal subsidies report that undercounted billions of dollars in direct and indirect subsidies to conventional energy sources. Koplow identified a number of problems with the EIA’s methodology, ranging from using a limited number of sources to ignoring many energy sector subsidies.

“In combination, problems of estimation and omission in EIA’s work render a picture of subsidies that has more to do with the scope and manner of its research than with the actual impact of policies in place,” the report concluded. Although Koplow provided the EIA with a list of detailed recommendations to correct these deficiencies, the agency’s methodology in its new report closely tracks what it used previously.

“We need to address climate change quickly and in the most cost-effective manner possible,” Vancko said. “This requires a logical and economic transition away from carbon-intensive fuels and an accurate accounting of the subsidies provided to all energy sectors. The EIA needs to improve its energy subsidies accounting work if we are to properly evaluate the distortions that existing policies cause. Any future work the EIA carries out on the topic of energy subsidies must be free of political interference, include a systematic and consistent assessment of all types of subsidies over a long period of time, and ensure that the analyses are done with greater transparency and broader public input.”

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